Jim Chanos: Hewlett Packard Disguising Maintenance R&D as Acquisitions

Famed short-seller Jim Chanos has his sight on Hewlett-Packard HPQ, whom he calls, "a fly in the ointment". As Chanos took the room at CNBC's Delivering Alpha the stock dropped 2.5 percent before recovering some of it. "Some people might think this stock is cheap," Chanos said as he slowly unveiled a short thesis Meg Whitman was sure to be uncomfortable with. "Some may see a forward PE of 5 times, and an EBIT of 6 times," he continued, picking apart every ratio that would otherwise suggest Hewlett-Packard was a healthy company. As Chanos overlaid charts for the attendees to see showing stagnant revenues paired with record acquisitions, he dropped the bomb that the company was using billions of dollars in acquisitions to disguise what he called "maintenance costs" in research and development. To drive home the point that the company's fundamentals were in trouble, he turned his case to the tablet. "In a conference like this, years ago, there would be a whole bunch of laptops popping up." "That is no longer the case," he continued, pointing the fact that tablets outnumbered PCs several-to-one. "It is no secret that the PC space is under tremendous pressure." Chanos continued. "An iPad's bill [of cost] is 40 percent that of a computer… and people have become device-agnostic." Mr. Chanos had no kind word for investors either. "People have become lazy," he said. "All they need nowadays is to look at a PE ratio, some murky investor's involvement, non-GAAP numbers, and call it a day." He called the investor attraction to such value traps as "a disaster".